If you’re an auto dealer in Florida, you’ve probably heard the horror stories: a seemingly routine sales tax audit suddenly spirals into a six-figure tax bill, penalties, and even criminal referrals. Unfortunately, these stories aren’t exaggerated. The Florida Department of Revenue (FDOR) knows that car dealers are complex businesses, and they’ve developed specific audit techniques to uncover every possible underpayment.

This article takes you behind the scenes of how the FDOR conducts audits of Florida dealerships. From audit sampling strategies to cross-checking records and using third-party data, we’ll show you how auditors think—and how you can defend your business against unfair or overreaching assessments.

1. Sampling: How a Few Months Can Become a Massive Bill

Most sales tax audits of auto dealers do not review every transaction. Instead, auditors use a block sample method: they choose a few months from the audit period, review all deals from that window, and then extrapolate the results across the entire three-year period.

Example:
If you had 2 problematic deals in a 3-month sample and you sold 400 cars in that window, the FDOR may assume that 2 out of every 400 deals were underreported—then apply that error rate across all 4,800 cars sold in the full audit period.

That projection can turn a small mistake into a six-figure assessment. Even worse, if the errors are concentrated in the sample period (say, a staffer misapplied trade-in credits during those months), your actual exposure could be far lower—but the Department may not care.

2. Data Reconciliation: The Numbers Always Have to Match

FDOR auditors love to reconcile numbers from multiple sources:

• Your DR-15 tax returns

• Your Dealer Management System (DMS) exports

• Your bank deposit records

• Your deal jackets

• Your floor plan and inventory records

If the numbers don’t match, it’s a red flag.

Common reconciliation issues:

• DR-15 gross sales are lower than DMS-reported vehicle sales

• Bank deposits suggest more cash collected than what was reported

• Deal jackets show taxable fees that were excluded from the return

• Use tax on loaners, demos, or internal transfers never reported

Remember: any gap between revenue received and tax reported is assumed to be taxable unless you prove otherwise.

3. Out-of-State Buyers: The Exemption That Trips Up Dealers

Out-of-state buyers are one of the biggest audit targets—and one of the most misunderstood exemptions.

Under Florida law, a sale to an out-of-state resident may be exempt from sales tax if:

• The vehicle is removed from Florida within 45 days

• The buyer signs a removal affidavit

• The dealership retains proof of removal, such as shipping documents or a drive-out affidavit

But if even one document is missing or incorrect, the FDOR treats the entire sale as fully taxable—and will assess tax, interest, and penalties.

Auditors often find multiple “exempt” sales to out-of-state residents that are missing affidavits or have inadequate documentation. When they do, they disallow the exemption and may extrapolate that error across all out-of-state sales.

4. Trade-In Credits: Only Valid When Rules Are Met

Another favorite audit focus is how you apply trade-in credits. Florida law allows a trade-in credit only if:

• The traded vehicle is titled in the buyer’s name

• The vehicle is of like kind (i.e., a car for a car—not a car for a boat or RV)

Auditors look at every trade-in deal to make sure these requirements are met. If your paperwork is missing, incomplete, or shows a mismatch in title, they may disallow the credit—and assess tax on the full sales price.

Pro tip: Auditors often check the VIN title history to confirm ownership, especially if the trade-in credit appears unusually high.

5. Unreported or Underreported Cash Deals

Florida auditors are well aware that cash sales can be intentionally underreported or not reported at all. To identify potential issues, they:

• Review bank deposit records

• Look for inconsistencies in DMS data

• Analyze sales marked as “cash deals” but never reported on a DR-15

If even one unreported cash deal is found, they will likely expand the scope of the audit and treat it as a pattern of evasion.

Some dealers have “side agreements” that reduce the reported sale price—these almost always backfire in an audit and, depending on intent, can escalate to criminal charges.

6. Dealer Fees and Other Charges: Everything Must Be Taxed Unless Exempt

Dealer fees, documentation fees, electronic registration fees, and pre-delivery inspection charges are all generally taxable. The only exception is if the dealer is charging the actual cost of a third-party service (like a tag agency fee) and properly documenting the pass-through.

Auditors routinely look for:

• Dealer fees not included in taxable sales

• Items separately stated on buyer’s orders but still part of the taxable transaction

• Warranty and service contracts taxed incorrectly

Errors in these areas are common—and costly when extrapolated.

7. Use Tax on Demo Vehicles and Internal Use

When a dealer uses a vehicle from inventory—for personal use, as a demo, or as a loaner—that’s not a freebie. It’s a taxable use, and the dealer owes use tax based on the cost of the vehicle.

Auditors look for:

• Vehicles titled in the dealer’s name or used long-term

• Internal service invoices showing repairs on untitled inventory vehicles

• Missing or outdated demo logs

If your dealership has a culture of using inventory vehicles without documenting them or remitting use tax, expect a major use tax assessment.

8. Exemption Certificates: Verify or Pay

If you sell a vehicle tax-free to a reseller (another dealer or export broker), you must obtain a valid exemption certificate (Form DR-13) and verify it using the FDOR’s online tool.

Auditors will:

• Check whether the certificate was valid at the time of sale

• Verify whether the purchaser had an active dealer’s license

• Flag any missing, incomplete, or expired certificates

Even if the buyer later resold the vehicle, if you didn’t document the exemption properly, you pay the tax.

9. “If It’s Not Documented, It Didn’t Happen”

This is the golden rule of Florida tax audits.

You could be 100% right—but if your files don’t prove it, the Department will still assess the tax. That’s why recordkeeping is your best audit defense.

Auto dealers should retain:

• Deal jackets with all supporting paperwork

• Exemption certificates and affidavits

• Demo logs and service records for internal use vehicles

• Bank statements, reconciliations, and DMS exports

• Invoices and receipts for taxable purchases

Don’t rely on memory or verbal explanations. If it’s not on paper, it won’t survive the audit.

Final Thoughts: Know the Game Before You Play

Florida sales tax audits aren’t random—they’re strategic. The FDOR trains its auditors to exploit common weaknesses in auto dealership operations. The good news is that if you know what they’re looking for, you can fix issues before the audit ever starts—or defend yourself more effectively if it’s already underway.

At Moffa Tax Law, we help auto dealers prepare for audits, respond to audit findings, and challenge unfair assessments. Whether you’re being audited for the first time or you’re staring down a proposed assessment, we’re ready to step in and help.